Former Wells Fargo Chairman and CEO Dick Kovacevich says the federal government's bank bailout during the depths of the financial crisis was an "unmitigated disaster" and laid much of the blame for the financial crisis on "ineffective regulators."

"The decision by the U.S. Treasury and the Federal Reserve in October 2008 to make banks take TARP money even if they didn't want it or need it was one of the worst economic decisions in the history of the United States," Kovacevich told about 100 people attending a Stanford Institute for Economic Policy Research event Tuesday evening.

Kovacevich then offered a roster of reasons fueling his criticism of the government's Troubled Asset Relief Program, including "spooking the financial markets," damaging the reputation of financial institutions who did nothing wrong, and institutionalizing the concept that some institutions are too big to fail.

"And it provided an excuse for Congress to burden the banking industry with 10,000 pages of new regulations -- the biggest increase in banking regulations in history," he said.

"Conventional wisdom, on the other hand, suggests TARP was a success" in restoring confidence in the financial system, Kovacevich said. "The spin never ends in Washington, D.C.

"The facts suggest that it was an unmitigated disaster that should never be repeated," Kovacevich said. "TARP contributed to an unnecessary panic in the marketplace that still hasn't been fully restored."

The government's bank bailout was designed to give billions to the nation's largest banks, whether they needed the money, in an effort to lift all boats, Kovacevich said. Wells took $25 billion, over its objections, then repaid it as soon as allowed.

"I warned at that meeting that the opposite would happen," he said. "It would be inconceivable to the market and to most people that anyone would give $25 billion to someone who didn't need it, even to people in Washington.

"By giving capital to all banks, even the sounds ones that didn't want it, would be seen as a sign that even healthy banks were in trouble and that confidence levels would decline," he said. "All boats would fall."

He then pointed to the Dow Jones industrial average falling 40 percent and financial stocks plunging 80 percent within three months of the bank bailout as further evidence of TARP's failure.

"How can anyone claim that an 80 percent drop in the stocks of financial companies -- many reaching their all-time lows -- is a show of confidence?" he said. "In fact, it was an unmitigated disaster.

"Who should compensate the thousands of small investors who sold their bank shares at all-time low prices while short-sellers were making a killing?" Kovacevich said. "I would hope the Treasury and the Fed would assume some responsibility for these unnecessary losses.

"The protesters, in my opinion, should be occupying Washington, D.C., and the Federal Reserve."

Kovacevich said some might ask, "Why didn't I just say no and not accept the TARP money?"

"As my comments were heading in that direction in the meeting, Hank Paulson turned to Fed Chairman Ben Benanke sitting next to him and said, 'Your primary regulator is sitting right here. If you refuse to accept these funds, he will declare you 'capital deficient' Monday morning,'" Kovacevich recalled. "'Is this America?' I asked myself."

"This was truly a 'godfather moment.' They made us an offer we couldn't refuse," Kovacevich said, adding that he might have put up more of a fight if the San Francisco bank (NYSE: WFC) had not been trying to acquire troubled Wachovia at the time.

"I view the Wachovia deal to be transformational for Wells Fargo, I believe that it's the best acquisition from a finance and strategic standpoint in banking history and perhaps one of the best deals in corporate history," he said. "By the way, I believe that even more so today, three and a half years later."

Kovacevich, who told me after his address that he's speaking as a "private citizen," said it may have been okay to give money to banks that were suffering from liquidity problems, but "giving all banks money should never occur, never never again."

Supporters of TARP would say that giving billions only to the big banks that needed it would have been a death sentence for these troubled institutions.

Kovacevich also took on the regulators during his presentation Tuesday.

"Ineffective regulators allowed this crisis to get out of hand, not lack of regulations," Kovacevich said. "No amount of regulation can make up for regulators who fail to do their jobs.

"Regulators certainly failed to uncover the risks being taken by about 20 financial institutions, but only 20," he said, citing investment banks and thrifts as the primarily culprits.

"Risks that were actually known by many market participants who prospered dramatically when the market collapsed," he said. "They knew more about the risks being taken by these 20 financial institutions than the hundreds of full-time regulators who were located inside the premises of these guilty financial institutions, and they made billions of dollars while these examiners were asleep."